02/08/2005 - 22:00

Tim Treadgold: Briefcase - Gallop getting nowhere on uranium

02/08/2005 - 22:00

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Geoff Gallop says Western Australia will retain a ban on uranium mining, a stance which makes some people happy. Unfortunately for Dr Gallop there seem to be more people who don’t believe him – and they’re placing big bets on the stock market that the WA premier will eventually cave in.

Until now, the gap between market and political events in the world of nuclear fuels has been largely confined to events in other states, or overseas.

But, in the past few weeks, the uranium debate has arrived in WA as shown by a 50 per cent rise in the price of Giralia Resources, and a 48 per cent rise in the price of Polaris Metals.

Neither company has a particularly high profile, but both are cranking up their uranium exploration efforts in Geoff’s backyard.

Giralia Resources has recently acquired three new uranium exploration permits near the Pilbara iron ore mining centre of Paraburdoo, and Polaris Metals has done a deal with Aborigines at the Kimberley Land Council over the right to explore on uranium claims in the Kimberley.

What makes Dr Gallop’s latest anti-uranium statement, and the two exploration developments, more interesting than might be expected, is that they occurred over the past two weeks and serve as a useful pointer as to how investors and politicians are interpreting different signals in the world energy debate.

To put the situation more bluntly, one side is right and the other wrong – and shares are being bought because there is a growing belief that Australia’s uranium policies will be overhauled no matter what people like Geoff Gallop say.

The share price movements by Giralia and Polaris are modest alongside moves made by other red-hot uranium stocks such as Summit Resources, Batavia Mining, and Paladin Resources.

In the case of Summit, its share price is up more than 1000 per cent since this time last year because it owns 50 per cent of the historic Valhalla and Skal uranium deposits in Queensland. Paladin is Perth-based but about to start mining uranium in the southern African country of Namibia, and Batavia has uranium claims near Harts Range in the Northern Territory.

Giralia and Polaris are working in WA and are apparently disinterested in the words of warning coming from the State Government. These two companies believe that the debate over uranium, and its role as a non-greenhouse gas producing energy source, will be played out on a global, rather than a state stage – and that world leaders are more keen to “cool the world” rather than persist with dodgy arguments over whether uranium can be handled safely.

To follow what happened in late July, consider these events. On July 26, Dr Gallop was reported by Australian Associated Press as saying his Government’s ban on uranium mining was “common sense”. He went on to say: “We are happy to look at uranium, but we have a clear policy based on common sense and we will stick with it.”

On July 27, Polaris announced that it had struck a deal with the Kimberley Land Council (once a very anti-mining group) to allow exploration on three licences covering 660 square kilometres in the Gardiner Range. Within minutes, the share price of Polaris jumped from 15.5c to 23c, a rise of 48 per cent. The stock has since eased to around 18c but the upward direction of the price flies in Dr Gallop’s face.

Giralia is a similar story. On July 22 it totally ignored Dr Gallop’s anti-uranium stance by agreeing to buy three uranium exploration tenements near Paraburdoo, adding to an already substantial portfolio of uranium tenements in NSW and Queensland. Giralia hasn’t said as much but it appears to be re-shaping itself as a pure uranium player. Its shares rose from 24c before the Paraburdoo deal to a high of 32c on July 26 (up 33 per cent over four trading days), but have since eased back to around 28c – more than double where they were 12 months ago.

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WHILE on the question of the WA Government wasting words by trying to turn back the uranium tide, how about another example of how dollars and words are being wasted in a truly mind-numbing bureaucracy that even Sir Humphrey Appleby of ‘Yes Minister’ fame would probably not have attempted.

Last week, one arm of the WA Government in the form of the Energy Safety Office said it would prosecute another arm in the form of Western Power over a fire at Tenterden in 2003 during which two people died.

The decision to prosecute followed a Coroner’s inquest in which an adverse finding was made against Western Power.

Briefcase understands that a successful prosecution might help compensation claims by victims of the fire but surely there is a quicker and simpler way to achieve this end without a court case in which one arm of government prosecutes another.

As if that isn’t silly enough, Energy Minister Alan Carpenter reckons the potential maximum penalty faced by Western Power should be increased from $20,000 to $250,000.

Briefcase had to think about this for a while and still struggles to see what’s gained by Western Power writing out a cheque for a $250,000 fine, or even the $20,000, when it goes to the WA Government – which owns Western Power.

There is something alarmingly circular in all this, but no doubt it helps a few legal eagles meet the monthly payments on their new BMW Z4 Roadsters.

•••

IN case you missed this advisory from the Melbourne stockbroking firm BBY, shares in Andrew Forrest’s Fortescue Metals Group are worth $7.21, not the $2.96 they were trading at the last time Briefcase looked at the market.

If BBY is right, then there is no doubt that FMG is one of the better investments available today or, to put it in BBY’s words, there is “substantial upside” – better than double your money according to the steam-powered Briefcase calculator.

But, even BBY acknowledges that FMG faces a few hurdles on its way to becoming “an emerging world top four iron ore producer”.

Risks include project facing, commodity prices, construction cost increases, and project delays.

After reading the BBY report, and a copy is on the FMG website (www.fmgl.com.au), Briefcase came to the conclusion that really it all comes down to being a believer or a non-believer in the company’s vision for the future; now that’s an interesting way to make an investment decision!

•••

“There’s nothing like a good dose of another woman to make a man appreciate his wife.”

-         Clare Booth Luce.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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